5 Things Traders are Watching Next Week, or "The ECB Throws the Kitchen Sink"

5 Things That Matter Most to Traders Next Week

The Euro extended losses first seen in May back when the common currency traded with a US$ 1.39 handle, ceding a couple more big figures this week. The British pound returned to some sense of normalcy this week after moving past Scotland’s independence vote last week and was a beautiful technical trade.  The energy complex was mixed with WTI outperforming Brent crude as oil markets grapple with Middle Eastern headline risk.  Gold and Silver both encountered challenges at technical resistance as the metals complex continues to deteriorate. The Dow Jones Industrial Average fell below the psychologically-important 17,000 level area on Thursday as Apple was temporarily pressured back below the 100.00 figure.

Here is what traders are watching next week:

1.            Germany grabbed some attention this week as the eurozone’s largest economic growth engine showed additional signs of weakness as provisional September manufacturing PMI failed to meet forecasts and edged closer to contraction while provisional services data outperformed expectations. The real scare occurred when the headline September Ifo business climate index paraded south and the expectations index printed at a dismal 99.3. These data were compounded by a weaker-than-expected October consumer confidence number of 8.3, down from 8.6 in September.  Next week’s tape includes German August retail sales and provisional September German CPI with the possibility of a month-over-month contraction in inflation.  September employment numbers are also due Tuesday followed by manufacturing PMI numbers on Wednesday. Any big misses on the data front could pressure the Euro lower.

2.            The European Central Bank is going to grab a lot of press on Thursday when the Governing Council announces its latest monetary policy decision. With a deposit facility that now stands at -0.20% - rendering it costly for banks to keep inactive reserves with the central bank instead of lending them – the ECB will garner attention as it is widely expected to announce details of its asset-purchase regime. European style quantitative easing is expected to eventually total some €700 billion or so and guidance from Draghi after the policy decision will be heavily scrutinized. Any indication that the QE package may be larger or longer than expected may have profound implications for the Euro which was trading below $1.27 during late North American trading on Friday, its worst level since September 2012.

3.            US economic data will be parsed next week after Federal Reserve policymakers took to the airwaves en masse this week, sharing their latest views on monetary policy as markets continue to price in a likely bump up in rates in 2015. Former Fed chief Bernanke is unlikely to say anything to rock Yellen’s boat in remarks expected on Sunday but his post-Fed economic assessments are worth a peek. Chicago Fed’s Evans is due to speak next week amidst a relative dearth of commentary from Fed officials. Among the biggies are August pending home sales, September consumer confidence, September ISM manufacturing, and August factory orders. Of course, September non-farm payrolls round out the week on Friday with some economists expecting about a +200,000 headline gain in jobs.

4.            There’s a relatively quiet battle being waged at People’s Bank of China and Governor Zhou may become a casualty. Traders were encouraged by this week’s relatively healthy 50.5 HSBC manufacturing PMI print and some ancillary numbers. The August leading index is expected over the weekend following by some PMI data on Tuesday and Wednesday and services PMI on Thursday. Zhou is said to be feeling pressure with chatter increasing that China may fail to officially meet economic growth of 7.5% this year for the first time since 1998. He is said to be hesitant to expand monetary policy much further, instead favouring economic reform and rate liberalisations. 

5.            Gold and Silver remain casualties of the US dollar’s extended resurgence. The full extent of monetary policy divergence between the US and Eurozone will become further evident on Thursday. If the markets learn the ECB’s bid is bigger and/ or longer than anticipated, look for the divergence trade to become crowded and Gold and Silver could come off further as a consequence.  Gold remained a solid bearish technical trade with trouble around the US$ 1231.92 area and notwithstanding a brief pop above US$ 18.00, Silver remained near a multi-year low.

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